The Impact of the New Form 8-K Rules in the... Mergers and Acquisitions Transactions

To maintain momentum ››
September 2004
The Impact of the New Form 8-K Rules in the Context of
Mergers and Acquisitions Transactions
By Carl R. Sanchez and Deyan P. Spiridonov
On August 23, 2004, the new rules relating to
Form 8-K disclosures (the “New Rules”) became
effective, shortening the time period for required
disclosures and requiring disclosure of certain
transactions that under the prior rules would not
be required to be disclosed on Form 8-K. The
New Rules are intended to benefit the securities markets by requiring companies to report
significant corporate events without undue delay,
thereby providing investors with better and more
timely disclosure.
The New Rules have a number of significant
impacts on the reportability and disclosure of
mergers and acquisitions transactions. While
a few of the existing reporting thresholds and
requirements remain intact, the New Rules effect
a different numbering scheme and are applicable
to certain matters encountered in a typical merger
and acquisition transaction that may have not be
reportable under the previous rules. This Alert
provides a handy outline of the applicability of
the New Rules to mergers and acquisitions transactions. As this Alert is designed as a quick reference resource, please be sure to consult the official
text of the New Rules for definitive guidance.
A. Effective Date. The effective date of the New
Rules under Form 8-K was August 23, 2004 (the
“Effective Date”).
Practice Point: Any amendments made after the
Effective Date to Form 8-K’s that were filed prior
to the Effective Date will need to comply with the
New Rules (both substantively and procedurally).
B. Shortened Form 8-K Filing Deadline. Under
the New Rules, issuers are required to file current
reports on Form 8-K within four business days of
a triggering event.
Practice Point: If an agreement is entered into (the
triggering event) on Wednesday, then the Item 1.01
Form 8-K (discussed below) would be required to
be filed no later than the next Tuesday. If the triggering event occurs on a Saturday, Sunday or holiday on which the SEC is not open, then the four
business day period begins to run on, and includes,
the first business day thereafter.
C. Amendment of Form 8-K. The actual form
of the report will be amended to include boxes
on the cover page that registrant may check to
indicate that the Form 8-K filing also satisfies the
registrant’s separate filing obligation under Rule
165 (requiring filing under Rule 425), Rule 14d2(b) and/or Rule 14a-12.
Practice Point: Typically, in a public company
M&A transaction, the press release announcing
an M&A transaction will be filed under Rule 425
or Rule 14a-12 on the date of announcement. In
addition, once the Form 8-K is filed, the Form 8-K
itself would be filed pursuant to Rule 425 or Rule
14a-12, as applicable. Under the New Rules, the
additional filing of the Form 8-K under Rule 425
or Rule 14a-12 is no longer necessary, so long as
registrant checks the box on the cover of the new
Form 8-K.
D. Organization of New Rules; Sections Applicable
to M&A Transactions. The new Form 8-K filing
requirements are organized into 9 topical categories with a new numbering system. Those sections
which are most relevant to M&A transactions are
Items 1.01, 1.02, 2.01, 3.02 and 5.01. Each of
these sections are discussed below.
1. Item 1.01 Entry into a Material Definitive
a. Disclosure. Item 1.01 requires the disclosure of
“material definitive agreements” (as well as any
amendments thereto) entered into by the registrant not “in the ordinary course of business”:
(i) For purposes of Item 1.01:
(1) “material definitive agreement” means
an agreement that provides for obligations
or rights that are material to and enforceable
against or by the registrant; and
(2) a material definitive agreement will not
be deemed to have been entered into “in the
ordinary course of business” if it involves
the subject matters identified in Items
601(b)(10)(ii)(A)-(D) of Regulation S-K.
Practice Point: The New Rules specifically exclude
non-binding term sheets and letters of intent from
the filing requirements under Item 1.01.
Practice Point: Material compensatory arrangements with management (director or named executive officer) of the registrant entered into in connection with an M&A transaction must be disclosed
under the New Rules on Form 8-K (i.e., registrants
can no longer delay disclosure of the material terms
of employment agreements, severance agreements
or modifications to severance plans until the filing
of the registrant’s proxy statement or S-4 related to
the M&A transaction). Please note that this may
be a departure from the prior practice of some registrants and will likely require careful monitoring
during the course of an M&A transaction.
(ii) Required disclosure includes:
(1) date on which agreement or amendment
was entered into;
(2) identity of parties to agreement or
(3) brief description of any material relationship between any of the parties and the registrant or its affiliates; and
(4) a brief description of the terms and conditions of the agreement or amendment that
are material to the registrant.
b. Exhibits. A copy of the actual material definitive agreement does not have to be filed with the
Form 8-K when filed under Item 1.01. Copies
of the material definitive agreement may be filed
with the registrant’s next Form 10-Q or Form
10-K, as relevant.
Practice Point: In the event the transaction is completed prior to the deadline for filing the registrant’s
next Form 10-Q or Form 10-K, as appropriate, the
material definitive agreement will nevertheless need
to be filed as an Exhibit to the Item 2.01 Form 8K that must be filed within 4 business days of the
completion of the applicable transaction.
2. Item 1.02 Termination of a Material Definitive
a. Disclosure. Item 1.02 requires disclosure of
any termination of a material definitive agreement.
(i) Required disclosure includes:
(1) date of termination of the material definitive agreement;
(2) description of any material relationship
between the registrant or its affiliates and any
of the parties
(3) description of material terms and conditions of the agreement;
(4) description of the material circumstances
surrounding the termination; and
(5) material early termination penalties payable by registrant.
(ii) No disclosure is required solely as the result
of discussions regarding termination of the agreement or if the registrant believes in good faith that
the material definitive agreement has been terminated improperly.
Practice Point: If there is disagreement among the
parties as to whether the material definitive agreement has been terminated, then registrant may
consider whether filing an Item 8.01 (Other Events)
Form 8-K is prudent in light of the circumstances
surrounding the dispute and the probability of registrant prevailing on its argument.
3. Item 2.01 Completion of Acquisition or
Disposition of Assets
a. Disclosure. Disclosure requirements under
New Item 2.01 of the New Rules are substantially
similar to those under Item 2 of the previous rules
under Form 8-K.
(i) Required disclosure includes:
(1) date of completion of the transaction;
(2) brief description of the assets involved;
(3) the identity of the seller and buyer of the
assets and any material relationships between
such persons and their respective affiliates
(4) the nature and amount of consideration
given or received for the assets; and
(5) and, if the transaction being reported is
an acquisition, the source of funds used to
effect the acquisition if there is any material
relationship between the buyer and seller.
b. Exhibits. Item 2.01 requires compliance with
Item 9.01 with respect to the filing of:
(v) if securities are warrants or options representing equity securities, disclose the terms of the conversion or exercise of the securities.
(i) financial statements of businesses acquired;
5. Item 5.01 Changes in Control of Registrants
(ii) pro forma financial information; and
(iii) copies of the plans of acquisition or disposition as exhibits to the Form 8-K
4. Item 3.02 Unregistered Sales of Equity
a. Application of Item 3.02. Registrant will need
to file an Item 3.02 Form 8-K in the context of an
M&A transaction if (i) the shares being issued by
the registrant in the transaction are not registered
under the Securities Act of 1933, and, (ii) the
equity securities sold, in the aggregate since its
last report filed under Item 3.02 or its last periodic report, whichever is more recent, constitute
1% or more than (5% or more for small business
issuers) the total number of shares outstanding of
the class of equity securities sold.
Practice Point: Otherwise immaterial transactions (transactions that do not need to be reported
under Item 1.01 or Item 2.01) may need to be
reported under Item 3.02. For example, a small,
immaterial stock-for-stock acquisition of a private
company being made by a public company pursuant to Regulation D or a fairness hearing under
Section 3(a)(10) of the Securities Act of 1933 may
be required to be disclosed under Item 3.02.
Practice Point: The filing requirement is triggered
when registrant enters into the definitive agreement
to sell the securities (which would not necessarily be
when the securities are actually sold in the case of a
transaction structured as a signing and subsequent
b. Disclosure. The disclosures required under
Item 3.02 include:
(i) the date of sale and title and amount of securities sold;
(ii) if securities are sold for cash, the aggregate
offering price;
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(iii) if securities are sold for property other than
cash (e.g., securities of another company, assets,
etc.), the nature of the transaction and the nature
and aggregate amount of consideration received
by registrant;
(iv) the exemption from registration relied upon
and briefly state the facts relied upon in claiming
the exemption; and
a. Application of Item 5.01. Registrant will need
to file an Item 5.01 Form 8-K if a change in control of the registrant has occurred.
Practice Point: In an M&A context, control-share
acquisition transactions and completion of the first
step (e.g., consummation of the tender) of two-step
tender offers will likely trigger the filing requirement under Item 5.01.
b. Disclosure. The disclosure required under Item
5.01 includes:
(i) identity of person acquiring such control;
(ii) date and description of the transaction which
resulted in the change in control;
(iii) basis of control, including percentage of voting securities of the registrant now beneficially
owned by the persons who acquired control;
(iv) amount of consideration used by persons
acquiring control;
(v) source of funds used by the persons acquiring
(vi) the identity of the persons from whom control
was assumed;
(vii) any arrangements or understandings among
the members of both the former and new control
groups and their associates with respect to the
election of directors or other matters; and
(viii) the information required by Item 403(c) of
Regulation S-K.
While the New Rules require registrants to disclose more transactions and on a quicker time
frame than the previous rules, careful monitoring of each step of an M&A transaction should
ensure that registrants have adequate time to
properly comply.
If you have any questions regarding the New Rules
in the context of M&A transactions, please call
Carl R. Sanchez, at (858) 720-2810, or Deyan P.
Spiridonov, at (858) 720-2590.